Waggott v Waggott [2018] EWCA Civ 727

June 22th, 2018

The Court of Appeal has made Judgment on a case which gives guidance on the application of the sharing principle, earning capacity, and the compensation principle.

The case concerned a married couple who lived together since 1991, married in 2000 and then separated in 2012. They had one child who was born in 2004. At first, the parties agreed their capital and pension provisions should be split 50/50 but were unable to agree on maintenance.

At the Final Hearing the Judge provided a draft Judgment which was later amended. The wife received £8.4 million and the husband received £7.8 million. The wife also received just shy of a further £1.4 million comprising of differing percentages of deferred remuneration received by the husband after separation. In addition, the wife was awarded maintenance on a joint lives basis. The maintenance was calculated by considering the shortfall between what the wife’s income needs were and what she could earn from her “spare capital” in terms of interest. The rate of interest applied to the capital was 1.75%. The court considered that the wife could not adjust without undue hardship if maintenance were to be terminated.

Both the husband and the wife appealed this decision. The wife advanced three arguments as follows: -

That earning capacity is a matrimonial asset and that it should therefore be subject to the sharing principle.

How should the court assess whether an award determined by application of the sharing principle meets needs? To what extent it is fair for capital to be used to meet income needs when the husband could meet his income needs from his income?

She also relied upon the compensation principle. When the parties met they were both accountants. Save for some ad hoc work, the wife had not worked since their child was born. The husband had been the breadwinner and she was the homemaker.

The husband cross-appealed. He argued that the Judge at first instance failed to give enough weight to the clean break principle enshrined in the Matrimonial Causes Act. He argued that the wife could adjust without undue hardship and that she should not be entitled to joint lives maintenance.

Judgment was given and guidance was provided as follows: -

Earning capacity is not subject to the sharing principle because: -

Extending the sharing principle to post-separation earnings would undermine the court’s ability to affect a clean break.

It would impact every case where one party earns more than the other regardless of need.

The court would need to consider what earning capacity had accrued during the marriage – where could it start to calculate this?

The sharing principle applies to marital assets, being "the property of the parties generated during the marriage otherwise than by external donation”. Earning capacity is not property and it results in the generation of property after the marriage.

The Court also rejected the wife’s argument that her capital should be protected and could not be used to meet her income needs. Again, the Court said this would conflict the clean break principle – the court applies needs to see whether the sharing principle is sufficient to meet future needs.

The wife’s compensation argument was also rejected. Judgment found that it was clear from the case of Miller that compensation is for recompensing someone who had been disadvantaged as a result of them giving up their career.

The Court allowed the husband’s cross-appeal – the first instance Judge determined whether to impose a term on the spousal maintenance order only by reference to whether the wife could earn enough to meet the shortfall between income needs and what she could generate from free capital. The Court of Appeal concluded that this was too narrow and that they should have considered whether it would be fair for the wife to deploy part of her capital to meet her income needs. This was to balance undue hardship and give proper weight to clean break principle.

The outcome was therefore amended so that the wife’s maintenance term ends in March 2021 and a section 28(1A) Bar was also ordered as the court considered it was not unreasonable for the wife to rely on her capital to meet her needs.

This case is incredibly important. It gives parties clear Court of Appeal guidance on how the sharing principle should be applied and confirms that earning capacity is not a matrimonial asset that is subject to the principle of sharing. It puts the clean break principle back where the legislators intended, at the heart of financial resolution, and also sends a clear message that, just because the sharing principle applies in relation to capital matrimonial acquest, does not mean the same is true of income. Furthermore, it actually confronts reality. In cases where there are such significant capital resources, to ignore the income generating potential of the capital assets is to ignore a resource available to that party.

If you are amidst divorce proceedings and what any more information/advice on how the court decides how the matrimonial assets should be divided between two separating spouses, then please do give one of our solicitors a call on 01908 262680;

Having obtained her A Levels from the Royal Latin School in Buckingham, Rebecca Stewart went on to obtain a Legal Secretary Diploma through Pitmans Training and immediately following qualification secured a role at Hawkins Family Law. Following that she discovered her true ambition lay in becoming a Legal Executive specialising in Family Law.

In 2012 Rebecca enrolled at Cilex Law School and by 2015 had completed all her level 3 exams, achieving distinctions in 3 of these modules, and is now an Associate Member of Cilex. Rebecca is now working towards her level 6 qualifications and is now able to act as a trainee Legal Executive under the supervision of the Directors of Hawkins Family Law.

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